November 17, 2008
Re: Proposed Rule 151A
I am an Investment Advisory Representative with a Registered Investment Advisor. I have immersed myself in investment advisory activities for 35 years, the first 12 years with bank trust departments, the last one of which I was the Sr Trust Officer in charge, and the last 23 years as an independent investment advisor and/or registered rep. I am also licensed to advise on and recommend insurance products. I am a member of NAFA (National Association for Fixed Annuities)
In 2000, I had a 76 year old female client whose investment portfolio I had managed successfully for 12 years. I used stocks and bonds exclusively to manage her assets.
My 76 year old client told me, in no uncertain terms, at one of our meetings in 2000 that she unequivocally no longer wanted her portfolio invested in any asset that could lose money and that she wanted to earn more than a CD investment. I did not know of a product, at that time, that would do what she wanted. However, I lost no time in widening my horizons. It was at this point, and at my client's insistence, that I came upon the Fixed Indexed Annuity. It guaranteed her principal against market losses while offering an interest rate which is driven by the S&P500 index. This product was discussed in detail with her CPA who agreed that it provided exactly what our client wanted.
She still has the fixed indexed annuity, has never lost a dime on it's value and has earned rates in excess of CD rates during the time period she has held it, the reason for which is that the interest rate alone is affected by the movement of the S&P500, not the principal value. My, now 84 year old, client is a sophisticated intelligent woman, a former New York fashion model, who clearly knows the difference between a security that fluctuates in value and a Fixed Indexed Annuity, which does not fluctuate in value. The entire SEC would not be able to convince her that it is a security, and she would be quite surprised that the intelligent people at the SEC are unable to understand the clear distinction between the two.
I did not forget about the Fixed Indexed Annuity. While continuing to manage client assets using securities, I also began to protect a portion of their assets with Fixed Indexed Annuities. The result has been remarkable. I have been through many market downturns in 35 years, and am thankful for the insistence of my older client eight years ago that forced me to search out Fixed Indexed Annuities. My current clients also thank her and me in the current market meltdown, as they see their assets remain steadfast without loss while their friends and neighbors suffer debilitating market losses in the current environment.
As for "misleading sales tactics", has the SEC lost sight of constant misleading sales tactics throughout the securities industry, actual cases of which are published every month by FINRA? It's most often not the product that is the problem in these securities malpractices. It is the people selling them. They are deplorable, but reclassifying those products that are clearly securities does not solve or even touch the problem.
Now let's consider "misleading sales tactics" in regard to Fixed Indexed Annuities.
The SEC cites its concern over improper sales practices as the primary basis for proposing Rule 151A. Yet the proposal is not supported by any empirical evidence that supports the SEC's claim that widespread abuses in selling the product exist. The Commission provides no study, research findings or statistical information to demonstrate or suggest that abuses are endemic or pervasive.
Furthermore, forty-one (41) states have adopted the NAIC Suitability Model and the NAIC reports that .1% (that's one tenth of one percent) of all complaints filed with state insurance departments relate to fixed indexed annuities. Members of the fixed indexed annuity industry, insurance industry groups such as the ACLI, NAIFA, NAILBA and IMSA, and insurance regulators, as well as those of us who serve clients in both venues, deplore fraudulent, misleading or abusive sales practices.
Furthermore, fixed indexed annuities are currently subject to comprehensive state insurance regulation.
I have 35 years in the investment industry and use both securities and guaranteed Fixed Indexed Annuities to protect and grow client assets, and take my responsibilities very seriously. You may talk to the client mentioned above or to any other client of mine to determine whether they understand and appreciate the difference between a security which fluctuates in value and a Fixed Indexed Annuity which does not. Most of them hold both securites and Fixed Indexed Annuities.
Respectfully,
J. Boyce Talbert, III